Electronic equity markets, such as The Nasdaq Stock Market collect, aggregate, and display trading information to various market participants. Electronic equity markets also provide electronic systems and networks that provide access to the market to traders and allow them to access trading information and liquidity in the marketplace. Using current systems, a trader wishing to build a trading position, particularly a large option position or complex transaction, will communicate with a “broker” or “sales trader” at an InterDealer-Broker. The broker then reaches out to a set of “contra” clients who may be interested in partaking in the other side of the order. The broker acts as a middleman within this paradigm, and negotiates on behalf of both parties. Once the broker obtains the agreement of both sides to a price and quantity to be traded, the broker then does the necessary work to cross the option components by submitting them to an applicable options exchange.
This approach is slow and laborious and results in time to execution to be measured in minutes, and indeed in some cases, even hours. Underlying this lack of efficiency is inefficient communications, which are carried out via electronic mail, phone calls, and/or instant messaging between a trader and one or more brokers and the broker's clients. The inefficiency is compounded when a trader is involved in multiple transactions simultaneously, requiring the trader to personally keep track of numerous individual communications associated with numerous different orders.
Additionally, brokers involved in transactions do not have the same incentives as the trading entities on either side of the broker. Each trader has a natural incentive to seek the lowest price, whereas the broker has the sole incentive to consummate a matching trade, with no sensitivity to trade price.
Still further, options trading, which requires manual options crossing, has historically required large broker commissions. This is unlike other asset classes—brokered equities, futures, etc.—where the standard commission rates have dropped over the last 5 years due to increasing electronic handling of order types.